Balaji v. Income-Tax Officer, Special Investigation Circle

~ S.C.R. SUPREME OOURT REPORTS correct and the application of the tenant-appellant for fixation of standard rent must now be deter-mined in accordance with Jaw. It would be for the competent authorities to consider now the effect· of s.46 of the Delhi and Ajmer Rent Control Act, 1952 or of any other law bearing on the question whirh may have come into existence since tl1en. We would, therefore, allow this appeal and set aside the orders of the Rent Controller, the District Judge and the High Court dismissing the application of the appellant. The application must now be dealt with in accordance with law by the authority competent to do so in the light of the observat.ions made above. In the result the appeals in all three categories are allowed as indicated above. The appellants in all the appeals will be entitled to their costs, but there will be one Bl't of hearing fee for each of the three categories of appeals. Appeals allowed. BALAJI INCOME-TAX OFFICER, SPECIAL INVESTIGA-TION CIRCLE (P. B. GAJENDRAGADKAR, K. SUBBA RAO, M. HrnAYATULLAH, J.C. SHAH and RAGHUBAR DAYAL, JJ.) Income Tax-Cor11putation of total income of indiv·id11al- -J 11clusion of income of wife and minor children jiorn patlntr· ship-- l'on<'ititut·ional ·validity of' enactntent-lnd·ian lnculf~t-tax Act, 1922 (JI of 1922), s. (16) (3) (a) (i) arul(ii) Uonstitu-tion of India, Arts. 14, 19 ( 1) (/) & (g). The petitioner and his wife started businr>S in partner-ship and admitted their three minor sous to it. Jn computing the total income of the petitioner for the purpose of assessment 1961 Roshan Lal Mehra v. bhwar Das S. K. Das J . 1961 August 4. ··984 SUPREME _COURT REPORTS (1962] 1961 1961 . the Incom..:tax Officer, in~lirded the. shar~ of the income of· _t~e 'wife and ~ree'_minor sons un_der, s.16(3)(a) (i) and Balaji. . (11) of the. Indian Income Tax Act, 1922. · The petitloner v. . moved the Supreme Court tinder Art. 32_ of the Constitution Inrome-taz chaJlenging the constitutionality the said provisions on the Officer, Spe.cial . •grounds, (I) that they were, ultra 'vires 'the Legislature under lnt"estigation.·' Entry 54 of the Federal Legislative List of the Government of· Circle · India ,Act, 1935, and (2) that they contravened the provisions • of Arts. 14_apd_l9 (1) (f) and (g) of the Constitution. . /hid, ·that the En;ries in the Legislative Lis;s are n~t i;ow.ers but' fields. of legislation an_d the widest import_ and. SJgndicance should be attached to them. Thus interpreted, there could be no' doubt that Entry 54 of the.Federal Legis-lative List must cover such legislation as the impugned provi-sion intended to pre\Tent the evasion of taic. _ _· Commissioner of I ncorrte~ta:r, · . Sardar Baldev Singh v Commissioner Delhi and Ajmer. (1961) 1 S.CJi.. 482, referred to. . . . , The t;,.o test~ -of· p~missible classification under Art .. 14 of the Constitution, as held by this Court, were (1) that the · classification must be founded on an intelligent dilferentia and (2} that the differentia must be . reasonably connected with the object of the legislation. · , . · ' . So judged . it , could not be said that the differentia on .whkh the impugned provision founded its classification had no rational relation to it• object, namely, the p~evention of the evasion of tax. The impugned provisi_on did not, there-fore, violate Art. 14 of the Constitution. · 1961 It- WM_ not appropriate to apply American -~ecisions dealing ,.,,ith evasion of taxes to similar cases . in India where the conditions \\o'ere entirely different. · Since the Legislature, . coQ'tlisant of the Widespread ·evasion Of taxes in this country, en~cted the law for its prevention, ·it would no! be l;'roper · · for this court in the absence of counter-balancing crrcum-. stances to hold on· the analogy .of American i;lecisions that there .;as no need for such legislation. . . Albert A. 'Hoeper v. · Tax Commissioner of Wisconsin, (1931} 76 L Ed. 248, distinguished and held inapplicable'. _ B. M. Amina Umma v. Income-tax. Officer, Kozhikode,. _(1954) 26 I.T.R. 137, approved. · · Nor did the impugned provi!ion violate Art. 19(i} (f} and (g} of the constitution.· · · · • . A tax' authorised by law· may be questioned as ~ffending _ the fundamental frecdo:in · under Art. 1 \l of the Corutifution, ... .,.,' - 2 s.c.R. SUPREME COURT REPORTS 985 A tax law, llke any other law, must also satisfy that~(i) the appropriate legislature was competent to enact it and (ii) that it did not infringe any of the fundamental rights. Md. Yasin v. The Town Area Committee, Jalalabad, (1952) S.C.R. 572, Himmatlai Harilal Melita v. State of llfadhya Pradesh, (l9j4) S.C.R. 1122, K. K. Kochuni v. State of Madras, (1%0) 3 S:C.R. 887 and K. T. Moopil Nair 'v. State of Kerala, (19Gl) 3 S.C.R. 77, referred to. Even so, the restriction imposed by the imp\lgned provision m~st be ~eld to ?e reasonabl~. Although the mode of taxation it provided might be a little hard on a husband or a father in. the case of genuine partnerships, that was sufficiently offset by the resulting benefit to the public as also by the fact that the additional payment of tax made by the husband or the father on the income 0f the wife or minor children would ultimately be borne by them in the final accour~ting bet\veen them. State of Madras v. V. G. Row., ' (1952) S.C.R. 597, referred to. ORIGINAL ,JURISDICTION : Petition No. 240 of 1960. Petition under Art. 32 of the Constitution of India for the enforcement of Fundamental Rights. T. Jf. Tliakar, S. N. Andley and Ramesliicar Nath, for the petitioner. H. N. Sanyal, Additional Solicitor-General of India, · K. N. Rcijagopal 8astri and P. D. }lfenon, for the respondents. 1961. August 4, Judgment of the Court has.delivered by • SUBBA RAO, J.-This writ petition filed under Art. 32 of the Constitution raises the question of the constitutional validity of s. 16(3)(a)(i) of the Indian Income.tax Act, 1922 (Act XI of HJ22), (hereinafter called the Act). ThP~facts are ~ot. in dispute a.i:d Ill:ay b.e briefly narrated. The pec1t10ner, J3alaJ1, his six sons, 1961 Balaji v. Income-tax Officer, Special Investigalion Circle Subba Rao .J. 1961 Balaji v. Subba Rao J. 986 SUPREME COURT REPORTS [1962] 1961 and hill wife, by name Godawaribai, constituted a Joint Hindu family. The family was a trading family and it had, besides business in money-lending, considerable agricultural lands. On November 23, 19·16, two of his sons became divided from the family. In the year 1951, through the intervention of mediators the other members of the family were also divided and another major member started a separate business on his own. Thereafter, the petitioner and his wife formed themselves into a partnership to carry on their business and admitted their three minor sons to the benefits thereof. On September 22, 1952, a partnership deed was executed giving an equal share to each of the partnera. On the basis of the partnership deed, in respect of the assessment year 1952-53 the petitioner filed two applications before the In<'ome-tax Officer, Wardha, one under s. 25-A of the Act for recognizing the partition, and the other under s. 26-A for registration of the firm. Both the applications were finally ordered by the Income-tax Appellate .Tribu,nal, Bombay, by its order <lated September 3, 1958, that is, the parti. tion was recognized and the firm was granted regi~tration. For the assessment years 1953-.54 and 1954-55 i.lso, the Income-tax Department registered the firm under s. 26-A 0f the Act. The assessment proceedings in respect of the saicj. three years are pending before the concerned Income-tax authorities. For the assessment year 1955-56 also, the Income-tax Officer allowed the registration of the firm, 'but determined the total income of the petitioner at Rs. 2,44,625 as against the total income returned by him at Rs. 58,232. The disparity arose because, while the assessee excluded from his total income the income of the partner-ship falling to the shares of his wife and three minor sons, the Income-tax Officer included the share income of his wife and three minor sons in the said business in the total income of the peti-tionev 1.'he petitioner, by the present petition1 2 S.C.R. challenges the constitutional validity of s.16( 3 )(a) (i) and (ii) of the Act, and prays fo'.r a declaration that the said provisions are ultra vires the Constitu-tion and for the issue of a writ of certiorari quash-ing the assessment order dated .Marc~ 15, 1960, and for the issue of a writ of pr'.ohibit10n restraining the respondents from including the share income of his wife and minor children from the part11e1 -ship firm in his total income and taxing the same in his hands. The first question raised is whether the appropriate Legislature had t.he competence to enacts. l6(3)(a)'(i) and (ii) of the Act. It would be convenient at the outset to read the re~evant part of the said section. Section 16. (3) In computing the total income of any individual for the purpose of asses-sment, there shall be included- ( a) so much of the income of a wife or a minor child of such individual as arises directly or indirectly- ( i) from the membership of the wife in a firm, of which her husband is a partner; (ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner. Section 16 provides for the computation of total income of a person and describes what sums are to be inoluded and what sums are to be excluded therefrom. Under sub-els. (i) aud {ii) of cl. (a) of irub-s. (3) of the said section, the shares iu the profits of the firm received by the wife and the minor childreu shall be included iu the total iucome of the iudividual. Under the said sub-clauses an individual is made liable to pay tax in respect 6f tl:.e income of his wifr and minor children, 1961 Balaji . v. Income•tax Officer, Special I nvMtigalion Circle Subba RaoJ, 1961 1961 1 nconie .. tax l.ij/icei-, Special Inve,,tigation Circle Suhba Rao J. StrPRE.ME COURT REPORTS [1962] though the said liability is confined to the cn·cum-stances mentioned therein. Learned counsel for the petitioner contended that Entry 54 in the Federal Legislative List of the Guvernment of India Act, 1935, did not confer on the Legislature any power to tax A on the ineom l of B and, therefore, the sub-section was nltm vires the Legislature. Entry 54 of the Federal Legislative List ran : "Taxes on income other than agricultural income". The said Entry i~ identical with item 82 of List I of the Seventh f.lchedule to the Constitution. The argument is that income-tax is a tax imposed upon a person in relation to his income and, therefore, A can onlv . be taxed on his income and not on the income df B. Learned counsel for the respondents, on the other hand, would contend that the express terms of the Entry did not restrict the lagislative power to tax only the income of the person assessed, that what could be taxed under that Entry was "in-come" and, therefore, nothing prevented the L<'gislitture from imposiug the incidence of the tax on a person other than the 1ierson whose income was to be assessed. Alternatively, he would make a distinction .between the taxability of the income and the machinery for its collection, and contlmd that, though the income of the wife and the minor sons was only taxable, there was nothing illegal in imposing the immediate incidence on the father, as there was sufficient intimate nexus between the individual, his wife a:nd minor sons, doing business in partnership, leaving the ultimate liability inter se to be settled between themselves. This question was directly raised in B. J-I. Amina Umma v. Income-tax Officer, Kozhikode (') aud was answered in favour of the Income-tax Department. The same question was posed before, this Court in Sardar Bcildev Singh v. Commissioner of Income Tax, Delhi and Ajmtr (') and was left (I) (1954)261.T.R.137. (2) (1961) I S.C.R.482,493. open. A final decision lJy this Court on such an important question at the earliest point of time is highly desirable, but, with some relnct.ance, we are leaving open this qneslion once again, as the petition can be satisfactorily disposed of on a narrower Lasis. It is well settled that the Entri('s in the Lists • are not powers but ;ire only fields uf legislation, and that wicle~t import and significance must be given to the language used by Parliament in the various Entries. Sarkar, J., speaking for this Court, observed in Sardar Baldev Si:ngh's Case ([1]) thus: " So entry 54 should be read not only as authorising the imposition of a tax but also as authorising an enactment which prevents the tax imposed being evaded. If it wen' not tu be so read, then the admitted power to tax a person on his own income might often be made infructuous by ingenious contrivances." This decision holds that the said Entry can sustain a law made to prevent the evasion of tax. The short question, therefore, is whether s.1'3 (3)(a)(i) and. (ii) is a provision made by the Legisla-ture to prevent evasion uf tax. Under the relevant provision of the Income-tax Act, if a firm is register-._ eel, the share of each partner in the profit of the firm would be added to his other income and charged as part of his total income. After 1966, the posi-tion is the same except in one regard with which we are not now concerned. This provision was intend-ed for the benefit of partners of a business, for it made th(em liable only to pay tax on their own in-come. But it gave au effective handle to evade taxation in another direction. A husband or a father could nominally take his wife or his minor sons in partnership with him so that tax burden (1) (1961) 1 S.C.R. 482, 493. 1961 Balaji v. Incame-tax Officer, Special I tW€8tigation Oirc/,e 19()1